Transcripts For SFGTV Retirement Board 121416 20170108

And stansbury one up here today can we do please take roll call cohen speak, here. Bridges, here. Driscoll, here. Makras. Mdm. Clerk its time for close session open up or Public Comment on our close session items. Seeing none, Public Comment is closed. At this time [gavel] thank you we will resume at in 15 min. At 2 30 pm. Excuse me. Good afternoon. We are going to take a motioncan come out of close session and make a motion not to discuss what we discussed in close chat session. Is there a motion . [inaudible] [off mic] not just us what was [inaudible] motion has been made by commissioner bridges and second by commissioner cohen we can take that without objection. Thank you. Clerkfirst i want to thank the public for allowing us a few more minutes. Your time is important and i want to recognize that. Thank you for being flexible and honoring our request. I would like to go to item number four mdm. Clerk and you call that for me . Item 4 general public on ive one public card. If theres anyone us dont like to speak these, not or one or i pool not to reveal the minutes of the close session. Anyway one thing i want to comment on his hedge funds. One of the idea, supporting hedge funds is in an economic downturn maturities will take a less beating. Now i think that perfectly good fund, especially those which the dow jones 30 are very faithful relatively speaking and they take less of a begin what is the sense of having hedge funds . Because theres such an overhead expense. Theyre not transparent or not accountable. Also, its [inaudible] okay. None of the hedge funds are based in the Cayman Islands. Okay but do they have dealings with the Cayman Islands . That in itself is suspicious because the Cayman Islands are a hotbed of monica money laundry, crime and what else you can think of that is bad. So i think that to go with traditional securities, to go with stable stocks is the best way to go and i think this is an elementary thinking about the stock market. It used to be thinking about the stock market if you would watch wall street brief with willisor any of the other programs. Basically, thats my critique of hedge funds and i was sick with to share it with this group. Thank you. Thank you mr. Weiner. [calling Public Comment cards] good afternoon. My name is johnanimate 42 year member of the pension funds. Id like to start up i telling you and make you all happy telling you a unmet Hedge Fund Manager joking is called confessions of a Hedge Fund Manager. As many two words to him just peered every time a pension fund asked why our returns are so bad, we tell them we are managing risk. We convince them that we are less downsize risk than the market even though 13s art a terrible with excellent [inaudible] and that they are better off getting low returns in exchange for minimal downside risk. Then we throw in a few greek words. We now convinced that investing in a hedge fund is good downmarket protection. Youve got greek words in all Hedge Fund Managers know a lot more greek words and you do. I will tell you that. Anyhow, you are supposed to get downmarket protectant when was the last downmarket . 2008, think that was the thirdlargest downmarket in stock market history. What happened in that downmarket . More than 2000 hedge funds went out of business after losing their clients money. The average hedge fund lost 18 and when the hedge Fund Loses Money you can kiss it goodbye. Its gone forever. And the great [inaudible] he started out 1 million bet with the top Hedge Fund Manager in january first 2008 and how was i that going so far . Well but that was that vanguard 500 index fund would outperform hedge funds picked by him to he picked five hedge funds and the best so far is the hedge funds are 21 and the Vanguard Index funds is up 65 . Now i think you will all ill give you a prediction if you invest in hedge funds you will average about 5 a year over 10 years. If you want some shock, Financial Therapy as mr. Coaker in the tenure period how much you will pay in performance and Management Fees to get it 5 return. Thank you. I realize this is the only opportunity to bring holiday wishes to all of you on the board from ra ccsf and also from ci you must pay retirees. David is unable to be here this afternoon. But also to let you know that we will still be here at every meeting watching and listening and we let some people speak first. We let the attack dogs out first. Dexter is not here so i can use that phrase. But thank you all very much for all your dedication and your hard work during the year. And for watching over for our pension plan. We just want to wish you the best of the Holiday Season and we will see you next year after we survive what i hope is a short meeting today. Thank you. Thank you thank you for those kind words. Clerk anyone else that would like to Public Comment seeing none, Public Comment is closed. [gavel] call item 5 item 5 action item approval of the minutes of november 9, 2015 meeting moved and seconded. Without objection Public Comment, and Public Comment on the approval of the minutes . Seeing none, Public Comment is closed. A motion has been made and seconded and without objection that passes without without objection [gavel] clerk next item item 6 consent under lets take Public Comment seeing none, Public Comment is closed. Moved and seconded. Without objectionwe took it. You missed it william. [laughing] without objection the motion passes mdm. Clerk item 7 item 7 Investment Committee report the Investment Committee report sent as printed. Its highlighted in what we covered and i just want to say public thank you to the Investment Team and mr. Coaker for facilitating and giving some really good speakers in for the informational session for the Investment Community meeting. But as the report states this is what was covered in hulk where private equity insecurities have done the oh so thank you to mr. Coaker and the Investment Team and all our assistance thank you. Thank you for the presentation. I too want to acknowledge not only investment staff but also the committee. Thank you very much. Mr. Mitts thanks for doing an excellent job with working with mr. Coaker putting together an amazing year for education in the investment field. Lets take Public Comment on this report. Seeing none, Public Comment is closed. Can i get a motion to accept . Excuse me me its a discussion item only. Thank you very much. Clerk the please call item 8 and i together item eight and 9 report on Investment Performance and Retirement Funds and number nine report on managers under review they are intrinsically linked. [inaudible] [off mic] mr. Martin intend to see cover some macro issues and about but in briefly on performance for the quarter. Im joined by dan hennessy who i know you all nobody joined us about three months ago. He is a wharton grad. He spent seven years at Franklin Templeton in research that spent four years with our bill or a major consultant down on the peninsula. He joins me as part of your team get your member dan lobo has returned to his home in rhode island due to illness and his family. So dan has been working with us for 23 months. You finally get to meet him. Along the theme of a very good year, as youll see in a moment before quarter which is your first fiscal year quarter was a very Strong Quarter for you all, 3. 7 net return. Which capped off a strong 12 month period. 9. 55 . So we do talk about this low return environment but since february weve had very very Strong Equity markets and Strong Capital markets and you benefited greatly from that. Since the report was generated the s p i wrote in my note this morning, was up an additional 5 but that was before the fed raised Interest Rates and so now its up an additional 4 . We had a little back off. The fed as you know raised Interest Rates 25 basis points at the last meeting with an expectation to do that again maybe more frequently in the next year. We did have despite that 4 since the report was produced the month of october was actually down 1. 8 and then a recovery which it was rates the point that we do face potentially higher volatility in the market as we go forward as the market adjusts to new expectations. You have before you on the projector the economic environment. Im not point to spend a lot of time on it. It has not changed a lot since the last period of time. At least through the end of september, we are 70 years into a cyclical expansion although its been a very slow one and we are no longer in a depressed economic environment but that expansion has taken place within the context of the lever to get deleveraging is a fancy word for paying down your debt. So the challenge of the debt overhang does remain in place in the new administration will have that challenge to overcome to the extent that revenues do not exceed expenses at the federal level. More borrowing is required and more borrowing will and impact on Interest Rates. I wasnt not cover each of these other than the point out down the page the fed funds rate was unchanged during the Third Quarter but that fed funds rate todaynot the fed funds, the treasury yields today is 2. 49 and heard as the we look at not just the constant maturity rates that we have here but the spot rate for on the run treasuries. That number is also in that 2. 5 range. So weve had an 80 basis point increase in Interest Rates since the close of the quarter. That is big news. I would be happy to take questions on the economy but as i say, its been a slow recovery in the us. We are at the aging part of that cycle. We have a new administration with new plans and so will be talking more shortly about the implications of that. If not, i would just take you to mark themselves on the next page to give you the backdrop of whats been going on in the market. As weve seen the economic aggression, you can see looking at the first column of very Strong Quarter across the board did other than in commodities andus equities were up 3. 9 with small cap stocks recover reasonable exposure finally catching up in generating over 9 . Thewhich is the nonus developed market of 6 emerging markets up 9 . Those bboth benefited your portfolio in the Third Quarter but ill tell you, both of those things have been reversed since then because of the strength in the dollar. Using some back off there. Core bonds in a period rising rates about half a percent. By the equity, up 4 . So you see generally very good numbers for the quarter and and if you look at the one your returns, very strong numbers in us equity, 15 . Emerging markets 17 . Credit related bonds, very strong. So across the board this is been a very forgot for investors in general and your portfolio has been well positioned with respect to over weight in areas that are done well. Pages 17 print for San Francisco msu one comment, first, bob . Go ahead a couple comments but go ahead way to the top line percent San Francisco, you see the top line there is your total funds time weighted rate of return net of all fees. The quarter was in the 57 percent out of the public fund. Group of greater than 1 billion. The oneyear, one 91. 55 [inaudible] three years 7. 2 , top 3 and the 10 year number, 10. 24 top 11 get very very good numbers and youll notice now that the one year, the threeyear and the fiveyear are either at or close to your assumed rate. If you look at the performance of the fund versus the public fund billion needy and youll see in all periods is outperformed and if you look at it versus a 6040 us Domestic International equity Domestic International bonds, other than the one year youve outperform that index as well. On the other hand, the fund is underperformed your policy index for all periods which were going to analyze shortly. A lot of that has to do with benchmarks specification as opposed to disappointing manager performance although there is disappointing manager performance in a couple of Asset Classes. On a riskadjusted basis, if you look at those tables and you look at your standard deviation versus the median of the fund, your staff, as theyve indicated, has operated your portfolio in a less volatile way then your peers. So your standard deviation is lower. Its below meeting in terms of riskiness and when you combine that a good return with a lower risk the measures that we use to talk about risk adjusted returns, the sharpe ratio being one where you look at the return per unit of volatility, the ratio developed by Frank Sortino looks at risk per unit of downside volatility, you will see your rankings on both a three and five year are in the top 10 , top 12 of the peer group. So very strong risk adjusted results. For the year ended september 30 you express a net investment gain of 1. 89 billion. With 764 of that drain the Third Quarter. Your assets are now at 20. 9 6 billion up for 19. 7 2 billion a year ago. So let me pause there with the headlines. Bob has some specific comments and will come back and talk about attribution. Can give me the dollar amount [inaudible] repeat that please the total value of the fun . 20. 96 the 7291. 8 9 billion is the investment gain and then during that period you also paid out money. The investment game, is 1. 8 under thank you this is on the right up on page 17, also. Thank you. Any other questions for martin . Just a few comments. This is been when i look at the numbers for this quarter all the managers we have in Public Markets including the private marks everything is nice to see there are some areas of disappointment. But id like to focus on specifically emergingMarket Equities. Across the board, we were 200 basis points behind and is the result of underweight in three countries and 2 seconds. Specifically china, taiwan and korea. Three largest countries in the index did phenomenally well during the quarter good as did Information Technology and financials and several managers were underweight those sectors. Longterm its worked out but for this particular quarter given some of the ways that are managers i will point out specifically mandate which were adding to the under with you had no weight in Chinese Technology companies. As a deep value emergingmarket equity manager so not surprised that no weight in Chinese Technology companies. Also nothing in chinese financials that that was the brunt of their underperformance during the quarter. Thats also one of the reasons theyre going under review for performance reasons during this quarter. So during very good quarter when i look out on an absolute basis as alan noted. Were up 3. 7 up during the quarter and a little more for the fiscal year. But there are areas of disappointment. Were also adding oak tree for operational reasons. Organizational. Whether also under review for performance. Now this is it almost sounds a little bit odd but they are Higher Quality junk or highyield manager. People continue to stretch for yield and fixed income as a result this portfolio underperformed its benchmarks. But when you look at the numbers. Are still added of their peers, which is a hopeful comment for us. [inaudible] im sorry . [inaudible] [off mic] were adding additional factor, organization. Sorry. That will conclude my comments unless there are specific questions from the board . I just want to take you to a couple more pages on both attribution of risk and return. If you go to page 21, on page 21, [inaudible] [off mic] if im right by memory now, june 30 at the end of year when we closed out we looked like 500 million decline in our total assets. How does that play on this that shows were making money . In on the analog report it says we are not. Just a you can walk us through that. So people that may compare these can understand. Part of the kneeso separating out performance numbers from changing dollar values. We run once you take into account contributions less pension benefits and expenses, we run between i think it is 80 5 million per month. So 960 some odd Million Dollars negative cash flow per year. Im sgt. I double back is good of you out 500 million negative cash flow. So looking at growth in dollar value while not taking into account the fact that money flows out of the system every month, it becomes difficult to connect total return numbers with changing dollar values. Sorry. Thats not a direct answer all give you more information. If its there with the numbers on page 17 yes. That sort of the crux of where we are at. September through september, july to july, january to generate, if the funds in the pot positive or negative . These are all when your windows and so we dropped a quarter a year ago and weve added what you can see here. We probably should go back and see if we can tell you the quarter we dropped but that is essentially the phenomena you are seeing. We should we make our fiscal year september 30 here because at the end of june markets were not nearly as robust and the prior 12 months have been a very challenging period cured we have your physical year return later on with Something Like to pointi have it in the charts here somewherewas very very low. Here it is. Total fund, fiscal year commissioner are you asking of our total fund value is larger now than a year ago . Yes, it is. Is that the question . June 30 through june 30 dropped by memory. But im just looking at [inaudible] [inaudible] [off mic] im getting trying to get a clear understanding how [inaudible] [off mic] we are in the profit zone for the past three years. Let me just strike at summer weather the evaluation is up or down, when we close our books, could we paid the last six months and the money that came in we are in the profit zone . s yes. Are fund value is decidedly larger now. When we get to the cio report theres a graph that will show that and we can walk through and i would answer the question. Or we can turn to that now. Im taking a three year window. So if anybody says we lost money, how do you answer that question . When we are saying over three years, we made more money than we spent in the turn. If i could just understand that . As we hear this over and over. We not had negative investment return over the last three years. We must not shut measurements as of june 30 each year and we measure the market value from the prior july 1 through the current june 30. We, in the meantime, as bob pointed out, are running cash negative. So if we earn 2 the value of market value of the trust could decrease because we paid out over 1 billion in benefits from those earnings, but weve had positive investment returns for the last three years. We have averaged over the last five years i think 910 . For the last three years to the benchmark weve used weve earned 7. 2 annualized returns. So that cumulatively compound thats the lower 22 . Our burn rate, meaning our cash outflows are about 5600,000,000 a year. So that is 1. 5 million. We will have earned about 22 and on pain out about 1. 5 million over three years, thats about 7. 5 land assets. So roughly speaking, our plan assets today would be around 14, maybe 15 higher than three years ago. We will see that also when we get to the cio report on make special note to show that to you. Is it fair to say [inaudible] for the past 36 months benchmark month to month to month weve always made money we now when you use benchmark are you talking up land value or benchmark . Returned. We made profit for the last 36 months, yes. Net of our expenses and that of our out benefit is that we are about 14 or about 2. 5 billion dollars, a little over the, almost 3 billion i thinkright around 3 billionmore than we had three years ago. Okay . It will become clear when we get a cio report. Its clear but am asking it so i can hear it. Im asking is there some questions people have asked me [inaudible] and i told him i dont believe we are. Its not. Thats why im asking 36 month to date the one month weve lost money and i believe we have not. So im asking [inaudible] lets remember one number. Hang onto that number when we get to the cia the report. One number is on page 17 get since we are referring to three years, as we look to the total fund return that is 7. 2 annualized. If you look over on the far left, our plan value right now is about 21 billion. Lets remember those two numbers and when we get to the cip report will complete the picture. Beautiful. Thank you. Can you put up slide 27 for a moment we i mean, slide 28. 28, here are your fiscal year returns for the fiscal years from 2016 back. You can see every single year on a fiscal year basis you have a positive return. But your 2016 fiscal year, which is the year that ended june 30, the burnt 1. 29 . That was less in investment returns than you paid out in benefits. So the fund, over that period, would have been smaller at the end of that period that was at the beginning we still had positive returns for virtually every period here. To your question, if you want it monthly, just looking at your results for this year, january your investment return was down 3 . February was flat. March you are up for 4. 33. There are months weve had a negative investment return but as you compound them into longer periods youve not had a 36 month moving period in the last three years what you have been negative. [inaudible] [off mic] pain offal or like when youre the city repaid their contributions and went up 500 million in cash, i believe. So the number with sku because we are prepaid but was still show on our financials statement. Thats why im trying to hone in on profit because i think its confidence issue to some degree when people start asking the question. Theyre worried about their pension and i want to walk through it and convey the confidence i believe we have in our returns. Thats what part of what were trying to convey in the write up on page 17 which is differentiated between the investment numbers and cash flow numbers. There isso the performance summers adjust for the fact we would get a 500 million contribution from the city in the first week of july. It usually shows up the first couple days of the new fiscal year. The july performance is not massively large because 500 came in. Its not included as part of the percentage performance but it is included in terms of how much the fund goes up in value. Correct. Okay. One quick question the fund does not have financial loss, has not had a financial loss . Thats actual actuarial losses used when the funds have shrunk at the trust has shrunk and as you see in the Financial Report is mr. Martin pointed out, we made 1. 29 which was not enough to offset the obligation of paying benefits, including the appeal be, retroactive benefits but just normal benefits. So there will be to your point, a slight reduction in the market value of the trust reflected in the Financial Statements i believe. Is that correct . I mean the trust shop that is correct because of our payout that weve had positive investment return. We smoothed losses actuarially over five years. We are through with 20082009 a off and we have all positive investment return years but we are still not achieving the 7. 5 . Thats where most of the conversation is. We have not been able to achieve a 7. 5 return. But you will see next month or in separate, that we will have actually less money in the trust as of june 30, 2016 then we had the year prior. Slightly. Again thats not because we encourage investment loss. We had investment gain, but the outflows to paid benefits exceeded our dollars earned on investment return. A small difference of years. Ivan number do you have an approximate number . I think its a couple hundred thousand dollars. Couple hundred million . Couple hundred million, excuse me me exactly just my thought. I think its for but [inaudible] you might be very close. 400 million. Less. Anyone else . Before we leave this chart, this chart is particularly instructive because if we you were to draw a line between that 5 and 10 at 7. 5, across that page, you would see for fiscal year 2016 and for fiscal year 2015 there is not a public fun in this country that earns the assumed rate. You did quite well but you didnt earn your assumed rate. Your actuary, remember with her fiveyear smoothing is moving those very good years we had in 2014 and 13 together with these two not so good years and if we dont get some other big ears coming forward that leads to the growth of unfunded liability unless you change your assumed rate. This is not just you. We are in a low return environment. All funds of experience fairly low returns. Youve done amazingly well in the 2016 fiscal year. You are in the top 16 and the same thing for the 2015 year. So you have done very well but its been very challenging market. From a compliance perspective, if we go back to page 19, this is just a snapshot of the fund as of 930. You can see all your allocations are close to policy as of 930 and all the allocations are within the approved board approved ranges with the exception of cash. Let a little more cash on 930. You outside of 1 range which i would tell you is very tight range. I think bill would tell you that was positioning against volatility worries. But you will see your allocations there. You also notice probably not to the liking of a couple members of the audience, that the absolute return allocation has been funded at the 1. 19 level as of the end of june 30. So those assets it started to be deployed. One clarification i believe the previous meeting at a previous meeting this at october 1 it was fun. You are saying, june . Im certain i shouldve said september 30. Thank you all right [inaudible] [off mic] on september 29. Which is why you see it there be 250 million. Okay. Under risk return base is identical go to page 21 number to go through this fairly quickly, these charts each dot is a public fun greater than 1 billion but we are plotted on a scale of return on the vertical and volatility on the horizontal. You will see if you thumb through both this page and the next page on every single chart San Francisco is in that upper left hand quadrant, meaning less volatility than your peers and higher returns. Thats going to be a fairly consistent theme across all of these. In the back of the book, pages 57 and 58 you have to go there now. We also present these results [inaudible] against a public fun greater than 5 billion universe and an endowment universe as well and the numbers are not dramatically different. I will caution you that public funds greater than 5 billion universe is a pretty small universe but if you look at that, the threemonth, you are 57th in the other one is the one year you were 39th. The threeyear you were third versus first did the fiveyear you were 11 versus eight. In the tenure 21 versus 43. The 10 year is very few observations. So you still look very very strong. Lastly look a little better against the larger universe and the same result would be true of endowments. One comment i would make on endowments is this is not an endowment universe thats all that robust. Smaller endowments that does not include harvard radio, stanford mit really really fine and diamond funds. So probably has a biased downward to it. Again youve done very very well even when you look at other universes. If you could tell me why doesnt include the harvards we because the data we get this from harvard and youll do not provide their data to the consultants that contribute to this universe. See you can find it . Herb and i can keep track that i write it down but its not in thisthis is a commercial universe thats been created it just seems to me if you have the numbers you could find out where they stand. You can add those because we hear harvard how did all the time but based on what i [inaudible] [off mic] advises the whole think i heard that as of last i dont know, 68 months ago harvard did not exceed its pre27. Bs harvard had a 2. 79 return [inaudible] can we get those numbers . [crosstalking] [off mic] again we are vendor. We get this data from a cooperative to which we provide data. I can augment that. Its a very manual effort and ill make every effort to make it more robust for you but its a manual effort. We dont get that as a matter of what i would suggest is harvard annual because we refer to those continuously and with those numbers representative. One of the two difficulties with the two schools and several other schools in the ids they will report out in their Investment Office books usually only the fiscal year most of them are june 3 we might deal to produces on the supplemental basis on a june 30 year end but on a continual rolling quarter basis, its going to be this universe were potentially [inaudible] information mountain altogether can you do the june 30 . Yes. I look for to seeing that [inaudible] it doesnt bother me. Thank you i think lets just look at a couple of attribution pages which bob can talk about. That will take you to the manager reality. So if we go to page 30 , we mentioned earlier that for the quarter you underperformed your benchmark bite 18 basis points. You can see here, we have knowledge of it that 18 basis points to allocation defect, meaning, being over our underweight in asset class versus manager selection effect which is how the manager performs. If you see the total aging, most of that was allocation defect and most of that was the fact that you are underweight, that you are overweight, cash during that period of rising market. If you go to the manager selection effect, what leaps out at you is private equity. Its called underperformance because that means you did less than the benchmark but recall the benchmark year is an aspirational benchmark it is s p 500 come up 5. When we do the Asset Allocation i think cambridge and we would agree that we ought to lower that spread given current Market Conditions but here again you have a very active up s p market, 5 . Thats not a performance issue. As you know your private equity is done very very well but it appears as a performance issue here. Similarly, real assets your benchmark is 8 . Its an absolute number. So the bulk of the underperformance is artificial. If you look across the rest of your Asset Classes reasonably good performance for the quarter. If we flip forward to one year and then bob can amplify the one year, again we trailed our policy by 2. 18 and hear about 1. 5 of that was in manager selection. Again, private equity still true but us equity underperformed in the world a number of managers in fact. International equity outperformed but International Equity is comprised of several categories. So when the core category you outperformed but as bob mentioned we go to the manager pages, you had underperformance in your emerging market activity. Global equity, which is one manager essentially, was on benchmark. Fixed income outperformed and ucd others. If you were to hold this forward and look at the three and fiveyear numbers which are not going to do in detail but i will tell you in fixed income generally outperformed it thats been very successful. In us domestic equity youve underperformed on average in this period peered international has been mixed with some underperformance in emerging in particular. You as a board will remarried terminated a couple manages that contribute to that underperformance and so in terms of your current portfolio positioning we can turn to your watch list but a number of the managers that contributed to the underperformance are no longer with you as of this time. The only comment i would make on these activation pages is when you look at the numbers and ill specifically talk to private equity real assets, our fiveyear number and private equity is a most 13 . This is a testament to the fact that both of returns really nice to look at but absolute returns and total fund returns in terms of reaching over the long period of time where actual return assumption is in my mind a little bit of a higher goal. Our private Equity Program as was discussed several occasions, is one of the best period. I figured talk about endowments, public, whatever. Take this information with a grain of salt. The private Equity Program is an exceptionally look at us equities in a good position and for the fixed income we are short duration rates coming up. This is going to be helpful. All long credit exposures been helpful over the last couple several years and i think i was as rates continue to go up. When i look at the activation numbers relatively happy with them on an absolute basis. I think in some areas we done exceptionally well. Theres plenty of room is mr. Coker is a discussed were looking at restructuring emerging Market Equities which is why some of the managers were bringing on board i think we added over the longterm. Just to reiterate the box point, if we go to page 55. These are. Group rankings of your private equity and real assets portfolio. To box point, 11. 9 annualized return. Thats below the policy index within the top 5 of your peer group. Again the policy index is very inflated in your real asset portfolio at 5. 6 is the best performing Real Assets Program in this universe which is 3040 names. Its not super robust but your private equity and real Asset Allocations have done extraordinarily well. Both an absolute returns and also relative to peers. I didnt have anything else that we could go to the individual managers to your liking but again, other than what weve highlighted and the watchlist, we think we are wellpositioned structurally for the environment we foresee coming down the track. It doesnt look like theres much change from the watchlist from the previous month if im not mistaken . We added one. We removed to get those were the two managers that the board approved terminating. Okay. Degrees for the record Capital Guardian which is emerging market managers has been terminated along with that software is one of our u. S. Congress that they were determined those funds are being redeployed and we added mongering for performance reasons and we also enhanced the other view cabin for oak trees highyield program other that theres not been any changes to the review last thank you collects any other necessary discussion . I would like to clarify we got numbers june 302015 market value 20. 4 billion. June 30, 2016 2220. 2 billion swords 200 million difference. Between fiscal years 15 and 16 . Exactly. Thank youyes . The fund did not lose 1. 5 billion over the last year . No. It didnt speed up [inaudible] [off mic] the question i have is on the performance. First of all if you go back your last page which was page 35. Pvt. Markets includes private equity, real assets and absolute return. The itc no. Is that correct . No. It should just include private equity and real asset we can make that were clear so if those of the two components and one of them earned 12. 98 and the other earned 12. 87, and their 5050, howd you get a number closer to 12. 88 . I dont think thats mathematically correct yes. They were not always 5050. He was it is this just for that period . These are courtly rope number so dependent on the specific periods of time this is mathematically feasible these are the weights as of the entering of the reporting period . Correct. You can do it for the quarter butthat does show the weights are changing over time. So, the performance for the absolute return also known as hedge funds of those are not included in these numbers we yes. Because this is piano thank you thank you very much. Thank your for your patients, staff. [inaudible] [off mic] we are discussion section 9 together. I know cap has been on the review for long time. At least for a couple years right . Bem product art and the [inaudible] part of the issue is with capital is very difficult to get manager specific specificattributionsi form they prefer to on their performance has rebounded recently active management was in favor until probably midnovember or so. But their performance through the september dates still lags significantly behind peers. Thank you. Thank you are we ready to take Public Comment we i do not see your hand. Please i guess my question the numbers on page 38 re [inaudible] i try to focus on the quarterly oneyear numbers but however one of the numbers their number [inaudible] there were nice enough to low lower the seat from 1. 7, 21 and by for the reduction they would have been in the red but the longterm question has [inaudible] dedicate quarter but longterm has been an asset allocator managing this six, seven, eight, nine managers underneath were stock pickers. I just try to figure out to we stay with them or not . Addresses question many times would last two years. This is the manager who is under review. We are meeting with regularly. You know, i dont want to make a comment in public to forecast a managers future. Ill be glad to talk with you privately but if we meet with his manager regularly. Vicki and on were just the good i think they spent 34 hours there just the past month or so. We are monitoring this vigorously. Publicly i would say please, stay tuned highly all be glad to have a conversation with you. If thats okay . If thats the answer, that is the answer. I will followup. We are not recommending termination as of this quarter. Thank you. Any other comments . Recalled items eight and nine ticket will take Public Comment for both eight and nine at this time. Public comment is closed. Eight and nine are discussion items. So we will move on. Mdm. Clerk please call items 10 and 11 together item 10 and 11 action items approval of minutes regardless for springs Capital Management thank you. They are selfexplanatory butokay, their self experiment. Hold on. I think were okay just turning it over to returned over to colleagues anything you want to say . Okay. Lets go ahead and sorry sorry i dont think we knew next permission at this time. [crosstalking] [off mic] lets go to Public Comment on him send 11 seeing none, become and is there a motion . Moved and seconded. This is for both. Sethi n spring a motion has been made by meiberger second bite makras. Without objection the motion passes. Thank you. Please call item item 12 item 12 chief Investment Officer report thank you mdm. Chairman can all be pretty quick here. November the proposed it fun. We were up 35 basis points. It was a huge divergence of return. The us stock market rallied very sharply after the election and meanwhile fixed income and International Stocks did poorly. International stocks [inaudible] trade and fixed income on worries of inflation and rising Interest Rates. But overall the portfolio did fine. For the first five months of the year are both blue is up 3. 17 . Every aspect or every asset class in our portfolio is up for the year led by us stocks which are up 7. 5 in the last five years. On a calendar year basis [inaudible] [off mic] in the last five months. Im sorry. Five months. On a calendar year to basis, we are up 5. 83 and again us stocks are the asset class leading the market up up almost 9. 5 we dont have any updates in personnel to announce that we do have one position that we plan to begin to recruit for good we are allowing the team the analyst team, the managing is now in place. For a while. We are allowing our recent hires are analyst team to gain some seasoning once thats in place we will begin recruitment for that one open position. Into Investment Committee meetings remaining during the year. You see february 15 is hardcoded. Only a second one sometime in may or june to we will get a date for you here within the next number of weeks. Section 4 is that you will see the pace of our private market commitments. The bottom line here is that we are running ahead of schedule. On number five is we do need to begin to monitor the pacing of our illiterates compared to asset values. We are up almost threefold compared to three years ago. Item number six is the absolute return portfolio. It was funded at the end of september. It was up marginally in october when. And bonds were down sharply and if david is reporting, for the month of november, its up another like 1. 1 or 1. 2 . So its done well. Item number seven is the to legal houses miller and spero are working out arrangements that we hope 70 agreement workouts and the Risk Initiative we are making a change. We discovered that with bny mellon are Historical Data is not loadable into a risk system. That is valuable data for us. There was another partner in another firm that we considered it and talk and talk and that. They were equally outstanding. We recommended bny mellon as a risk provider celebrity would be under one house. But given the value of Historical Data were going to go with the other option that was equally strong. In item number nine, a board member asked for what our investments in china are so we have details this out. The bottom line is that we are if you look at it on a total portfolio context, even taking into account our unfunded commitment, the Capital Commitments that we put in place, is that our total is right around i believe its a little over a percent to 1. 65 billion so thats a percent. That compares to mswhich is 3 and the cambridge Venture Private equity venture portfolio which is a percent. A little less than a percent. So we are marginally overweight could when i would note is that china is still expected to become the largest economy in the world 1015 years from now. Themoving to item number 11, i would just walk through that we spent actually a fair amount of time walking through any any pcs chart at made some comments in here. A few of the Key Takeaways would be that theres no sign of inflation. The economy seems to be fine. Theres consistent job growth. But valuations are a concern in us equity. There is some crowded this in the private markets. In bond yields of course in fixed income harlow. So we still have modest expectations for overall portfolio returns due to valuations, yields, and where we are in the cycle. With that alternate over to the board. Any questions or comments . Two questions. The dry powder. Is this not include the plans for but uncalled 750 million in the absent return area, practically that is correct. We expected the minimus amount inspector go to china am not worried about the china question get my point being about the Cash Management required to manage the much dry powder. Not every because it wants but its a significant number to a significant month cash to watch over so we dont miss a call. [inaudible] right. Commissioner to that point you will see a new item in our cio report, item number five in here. You look at the last line item. We will increase the monitoring of our commitments in our Liquidity Position spews thats the question im asking you is if you ask why its because of the scale on which weve increased our private equity real asset. And other commitments how are you doing that . To begin, this year we know that right now we have about 5 billion in total outstanding commitments. Say those are called over three years. On average. So we can expect about 1. 7 probably not about more than 2 billion is called to say that about 150 million a month or about 500 million a quarter. So we are looking at making sure we have liquid investments in how we would call that down in both public equity and liquid fixed income. Now we are going to get some distributions thats going to reduce that 500 million per quarter but thats how we are beginning to manage this. In addition to that, once we get a formal risk system up and running thats going to help further out and more systematize the management of our Liquidity Position. [inaudible] cash program i guess ill have to just say you are monitoring it all. Awfully that word picture i gave in terms of the numbers, we know we have 5 billion in outstanding commitments. We know thats going to be roughly on average about three years called. So we know that is roughly 1. 54 2 billion a year. We know that were going to get some capital calls so over that threeyear time horizon how much do we need in terms of liquidity from public equity and fixed income. So thats how we are walking through it. Next question has to do with earnings. Nice performance numbers. Discussions level of our proposal to two beers i question is with origin markets are going up but where are the earnings . Other earnings moving or not. I look at page 13 of the report. I dont see good im just wondering how somebody earnings . Yes. What i would say is earnings have not been great. That will lead us back to [inaudible] yes. So if earningssave earnings are zero in the stock market goes up 10 that means the stock market is 10 more expensive than it was a year ago. Earnings have been pretty pedestrian. Theyve actually been negative. I think for 45 straight quarters. Now the stock market also has done a lot. Of 10 over a year but over the year and half thats about what its return is. But that means valuations have crept up. If you saw in one of allens slides, is the schiller adjusted pe is no 26. 7 and that is really hot. We had talked about the top decile in terms of the historical valuations. That is athat is a concern. Its a material concern good we been saying that for a wild. Now valuations but alone dont tend to cause major market declines. It usually takes some combination of valuations, credit tightening, contracting employment. Those are big signals. Valuations people tend to get right for a wild but when you have had in Credit Conditions and rising unemployment and recession not only does the stock market come down because that theres no negative Economic Growth, is that high pe it also gets priced lower. Then you get a double when he are both declining Economic Activity and a declining valuation. Okay. A believer economic assumption though is two months away . Say again . We do economic assumptions and one of the numbers in that is the expected equity or german is ongoing with this because that will be how we two or three will affect the contribution rates we expect the sponsors and active numbers. Trying to find out how [inaudible] you talk about rates of return we get away from the issue early. Thats when try to find out how we live our economic assumptions are . And epc is formalizing their expected returns. For the next 570. They do that every year. Alan could speak to when that is. I think its about a month or two away. [inaudible] [off mic] yes. Okay get a month from now. As far as usually when we kick off the liability study the first thing we do is we model the liabilities. Then once we model the liabilities and we have expected returns thats when we begin to get into asset class management. Okay. [inaudible] thank you. This is going to be coming up throughout the first 78 months of 2017. Thank you if i could i like to address commissioner makras is earlier question and go to the graphic. If the graph proceeding the narrative. Where its title, spurs monthly net assets. Sfers one thing and asked. Since were highlighting the her neck and in june and the three years ended, we will go to that. At june 16 we had roughly 20 pointit looks like almost 21 million 21 billion. If you go back to june of 13 is that we had about 17 billion. Our plan assets are up about 4 billion over the past three years. Net, net about how close. We know that our closer about 5600,000,000 a. Is that helpful . Yes. Okay. Mdm. Chair i appreciate. Im a direct meiberger thank you for your board we covered a lot of ground to do one address a couple issues one of which is the liquidity. We talked about liquidity for capital calls and its nice to assume their continuous but often times. Big chunks. They are lumpy. Thank you. To avoid some problems, i think we should consider having all treasury in our cash for full good as a cash is now managed by custodian remember what happened last time when during the panic of 20 weight were custodian pros are cash account with to so other assets. We dont want that to happen again. So i think we should at least consider every scraper the giggly as the fed starts to tighten credit the recent bringing this up now, is the fact that the fed is starting to tighten credit. At some point will be some very. There will be oh with illiquidity. The way around that is through holding treasury. I do want to comment since we talked about Warren Buffett earlier i want to mention one of the stories charlie market shared that the last pitcher halfway meeting when one of its uncle was married one buffetts grandfather gave him cash as his wedding gift. Because he saidi think it was to her dollars or something, we give it specifically is about ready money because over the life youre going to credit needs for ready money. You dont want to be forced to sell something get that was the reason why the cash was used it to replenish it. This was the advice that young one buffett saw from his uncle fred naturally chartered ali said that labels a lot of cash in his attempted the liquidity is important. Dont forget what Warren Buffett. During the panic of 28 terms of yet the treasury when he could write a check for his acquisitions at the time. So is very very important. Usually you dont need liquidity 99 of the time. But 1 of the time its like for death. Lets just be mindful of that at least considered because returns are low any on the cash for full good liquidity is very very important. I think that something of these i would suggest that we consider. Number two, and ill leave it at number two. Were always word about the recession. When we hurt and burning key speak a year ago i love his face, the usual culprits were not there for recession. With a very long expansion and specifically credit tightening. We seen a change. He used the word, left up when i think of lift off on think about a missile going up. When you think about increasing yields thats not good. What i would suggest when most vital indicators over the recession is the tenure minus the one you get the inverted yield curve when the oneyear yields more than the tenure typically recessions follow. Within a year or so. So if you could just add what number, what is the 10 year treasury yield . What is the one year treasury yield quick because a very long warning and as you said before it inverts the gas to get smaller. So this is probably the warning if you will. Sorry the best warning that work in the past when recessions happen because thats what the concerns are get in recession stock market goes up to so this a most reliable indicator by looking at the inverted yield carpet lets at least monitor that. The lease we can get ideas of stresses and strains in the economy. Again thank you for your report. Commissioner. Com and will quickly on the quiddity . We have between us equity between the s p 500 are large value and [inaudible] enhanced index strategy, highly highly highly liquid. We have 3 billion in assets between those three. We have index investments in International Equity than a ticket total into about 3. 4 event in the bond index we have almost 1,000,000,000 in the berkeleys us debt index. We have 639 in the investment manager and Research Government credit index and we have another 300 million in the blackrock 13 year treasury another 700 million in the barren investment which is very very high quality. What i am driving at is that between these, we havewe have 6 billion of very liquid investments. A little over 3 billion in public equity and a little less than 3 billion in fixed income. So i can ballpark it could i can see it that we are in good position here for a wild its more the pacing Going Forward and is that called overtime . Or is it just laid out a few more years. But we will teach oh this more periodically for the board. Thank you. When you share this afternoon and the other times were the stock market is going and pricing is high and p e ratios are high, today sure that you have a material concern about those values. If you dont make recommendations to us of any change are we just to assume that you take your Asset Allocation and go forward and youre taking on those maternal concerns as a proactive action to stay in the market or you just giving us a warning so we can share the blame if the market falls . [laughing] i wanted over doing something when were talking about these, im going to call it that flies. Its great. I been here three, four, five years but i dont see us moving the ship cured yes. On that suggestion we move the rental of just asking the question so i understand, what im to expect. If you dont move the ship, then is that an action you are making . Yes. Their question. [inaudible] the material concern you have. I just must wake up and say were all sparrow but we all told each other. Yes. As a matter of practice, i think that market timing is a poor thing to do. I can give you two examples of that. In october 87 the stock market fell 22 in one day it fell 30 over two months. We thought the stock market was priced too high earlier in the year the mark was up 44 through august. So the market was just blowing through new highs. Up 44 . Monday morning order back but the point is youre bringing the concern to us now. I want to know if you are asking us to act. If you are going to ask. I just want to [inaudible] i can crystallize this in a single sentence. Valuation is a not a good predictor of shortterm returns. It is a good predictor of longterm returns. So we can show you the data on that. What that suggests in the shortterm we avoid you with the stock market is going to do. Both of two valuations, but in the longterm it tells us that our returns are going to be low from beta returns in the stock market. So, going back to my question, if a recommendation does not come from you [inaudible] well i believe we together as a policymaking board and a professional investment staff is we cant forecast shortterm returns but we can decide how much risk we want to take and where we want to take it. So we decided that three years ago we are going to revisit outs of allocation again next year. We, right now are not recommending to be significantly underweight or significantly overweight equities. So so when you say were in it together i believe that we are. Do you actually want to vote if we want you to put something on paper or are you going to take individual guidance so we can look at it like commissioner meiberger said, we should do bonds. To be liquid. Well that sounds good and it may have appeal but id like to see what we think we can return on bonds. What we are doing down and compare and view its good obviously have a recommendation whether you would agree with that or not agree with its. But i constantly see is these ideas but i dont see us looking at them in real hard numbers and making it a policy decision by what we discussed. We are currently operating under an asset of patient was presented to this board nearly 3 years ago and her movement is towards getting to those allocations. As mr. Holder pointed out, the sub asset class will be coming over the nextto three months yes. Will be discussing specific strategies, tactics, were sub assets. So we will be bringing it but you are absolutely correct. You, basically need to have calendared an action for you to take to direct staff to do something other than what we are recommending but we, every month ring you forward recommendations and we will be going through it fullblown Asset Allocation over the next six months. Right . Right. I believe the board approved as an outpatient on guesses around october 14 and i dont know. Maybe was a few months after that what we been doing since then is weaving executing on that. That execution was to materially increase the funding of private equity to increase the funding to real assets including building out a Natural Resources strategy. To fund the and implement the absolute return strategy and reduce long winded stock and longwinded bond. Thats weve been executing on the last 2. 5 years. We will continue to execute on that until we get direction from the board next time to act on Asset Allocation. It doesnt mean that in the 2. 5 years we done nothing in terms of other than just execute on the policy directives of the board your we have trends height youll believe increase the credit quality of us equities. We do think oftentimes from time to time about the positioning our equity market, but while in the us market, we worry about high evaluations in the International Markets we worry about poor fundamentals. Europe. Japan. Emerging markets. Many of them annually was ill is in the worst recessionbrazil is a two and 40 or economic disappointment. So these two things awfully each other. Ideal scenario would be if we had low valuations, poor fundamentals but the poor fundamentals are getting a lot better. Because then you not only of robust Economic Growth but you also have a repricing of risk asset higher. Right now, well see an environment where anything the risk environment area that has those characteristics. Thank you. One of the things are called the cio talking to us about educating us about one of the reasons i can say what i voted for, as it outpatient mix was inserted i guess id forget it was a bible anyway it was the usual drawdown. They dropped is it not a rate of return. Lessen the impact on us. Thats why he recommended us to go into the absolute return area. Rented his original recommendation was 15 . We all items it recover myself voted on the 5 and those were things he was trying lead us to do and the driver was excuse me think we agreed on five. Whatever you want to use. But again trying to deal with the drawdown affect those were the better ways to do it. At the same time pursuing beta returns increasing commitments to real estate and private equity which of all the pros and cons. [cough] all the drug powered on socket a lot of other issues is recommended over so time to implement thats one huge move. The second one most recent discussion was because of changing custodians of how good is their platform to build out what i think bill is leading ellen has also come up with Risk Management tools to load on issues of managed future so we can go start up we think something is going on how quickly can we reposition as opposed just making longterm i think those are tools again will take one, two years to implement but the people are here the budget is. But if things were not he was commissioner driscoll menotti gallo. The wind commissioner driscoll is referring to is if we have a good robust this system along with provider that we can equity eyes are cash because right now our cash is earning cash rate of return. That cash should be automatically advertised in the futures market. So we are earning the equity rate of return and its highly liquid. You can sell it the same day. Another thing is automated rebalancing. Where we are automatically be balancing that target. I cannot incrementally some small number of basis points. Its not 50 basis points to return but it can help return, help boost return. Then the last tool to use is to use futures and options, derivatives, to change your risk exposures without selling physical spirit because selling physicals is, one, it can be expensive. Second, it takes time. For example the dfa International Smallcap strategy that would take us several months to liquidate. Its a highyield strategy takes several months to liquidate. We should not be in a position to have to wait to do that. But we need to complete the tools to do that. This is the big thing that alan is here for. Among several. But we want to get these tools up and running. So is that helpful . Okay. Thank you anything else . No. Commissioner meiberger brings up a good point and we will include the second will include a schedule to show the liquidity now looks like we are forecasted to do over the next several years so the board can see you. Thank you lets take Public Comment on cio reports. Public comment is closed. Thank you good mr. B mr. Please call item 13 item 13 discussion item managers report thank you. Good afternoon commissioners. As you can see before you, we have the monthly for comments asian activity viewports. I would like to open this opportunity for any questions you may have with regards to this four we go into the other update. The report speaks for itself but i think mr. Driscoll a something to say. [inaudible] [off mic] the discussion items were that we were concerned about how to deal with the Investment Advisory and flightpath but the manager [inaudible] had done a lot of work with so we are okay either. There may be some minor changes going for but the committee will work on echoing forward. There are are other items range of issues were working on but being[inaudible] then hardcore loadable managers all that would be was being done at the same times pia proving to improve [inaudible] adding value and thats going to be our goal adding value. The one thing thats been talked about the last couple of weeks now that theres new president elect online, what ms. The undersecretary for labor fiduciary rules was to go in effect in april we been how will it affect us directly or indirectly. I assume that rule is not the change could weather doesnt not result in continued pursuit respect our vendors comply with the intent of that rule. That education issue which anna boyle doesnt be quick for the board numbers to understand this what we join our vendors this fiduciary rule for anyone working magically making recognition to our participants. Again just one of those list of items in the near term in the neck six months will come back to the full board. Thank you, commissioner. Sorry. One more. If i could just make a comment . Sure. If you could expand on the loans to participants at i know partisan civics lesson interest. I see 13. 7 million taken out by [inaudible] first of all thank you for your [inaudible] i know its very a lot of different pieces to the puzzle. So youre involved in the implications implementation of its. If you could just give us expand on the program. How it is going . Sure. As you can see weve included tracking of the problem in the monthly reports. Obviously loans can to be very very popular. People are definitely taking them out for the highest amount with the longest period of time. In a way this is good for them because theyre definitely meeting their 50 net pay threshold. They can actually afford to repay these loans. At the same time, it takes a long time for them to repay those loans. So the issue is, the fact that you want to make sure we made the process easy for people to actually do. We do not want to launch a program that was not client friendly. Because the whole goal was to provide it to our constituents. So if you apply for loan today you are automatically approved. If you have the right assets involved in the right records must you take a homeowner theres more documentation thats required for that. Because the homeowner is over a longer period of 15 years versus a standard fiveyear period. The issue is, is it really too easy for clients lastly take a loan out wed be a basically to grapple the decision on how easy do i make this for clients and how available to we were really want to make this program. Those are things that we are thinking about. As you know we recently hired a new loan manager. Those are the things were going to be discussing and continuing to work with our partner, prudential, in administering the loan program. That is at a the short highlevel view. Our feedback is good. A lot of people are being able to take out a loan and unforeseen emergency heavily decreased. That is one positive. There are maybe one or two that come in and thats partially because they say dont have enough get the loan amount they can take is not up for what they need. We the question over here. In my point of view the easier the better. When you are saying you are reviewing it and youre looking at it obviously the alternative is to make it a little harder. Or, maybe have a coolingoff period. Could you shoot you share with aboard people regret borrowing the money or youve heard anything that we do to believe that the easiness made it a mistake [inaudible] i was in vegas and i wanted to place a white when and for my money and i regret it. We have feedback from our members . So i was eight i members are happy to access to this morning. At the same time, theyre trying to fulfill an immediate need versus looking at their overall longterm strategy. Even though, yes, theyre happy that access to the money theyre using it today may not be the best thing for them in the longterm. Thats really sort of ruby and stop coming to we want to make sure that were actually incorporating all the potential possibilities of what could happen to participants over the course of their life so theyll ultimately have sustainable Retirement Income to supplement their pension benefit. Yes, i would say, yes clients are happy to access to their money. Is it really the best thing for the . They dont care. They dont care and we do. [inaudible] [off mic] i think our consideration is not to make it more operationally difficult to take a loan. Because it is very simple. You fill it out and submit it. Its a done deal if you have the money in your account. What were focusing is are we provide them enough information before they push the Submit Button and make sure they understand that they are choosing the longest Repayment Period good maybe because they think thats the easiest but it might be better for them to choose a shorter Repayment Period depending on what their retirement goals are. So i think its focus on putting additional education in front of the Submit Application button and i think thats the nature of our concern. We do advising to our members than . [inaudible] we dont. You login [inaudible] [off mic] to either give them advice or [inaudible] we expect to them what their Investment Options are so they can make their decision themselves. We also offer Asset Allocation programs so they can easily invest to understand every single core investment option. We actually are not allowed to give advice that we have retirement councils to basically explain what the plan is, how it helps you, how it supplements your pension and what your Investment Choices are. They can also give some advice on how quickly want to rebalance, but generally as far as Investment Advice whether you choose one fund or the other, no, theyre not allowed to do that. [inaudible] [off mic] thats part of what ongoing bringing them in and making it harder [inaudible] i think that theres some risk to us in the Investment Advice business theres no intention to bring people in or make it harder to apply. What we want to make sure is that they plainly can see when theyre making decisions on the amount they want to borrow or the Repayment Period that they should be considering that this money will beif they retire early while i still oh money what the impact is. Its really education. Its not by saying, well, you choose a fiveyear repayment and retire in three years, please, no it will do in table or be a taxable event. We want to make sure the education is there. So its not advice. Its just making sure that people dont take the easiest route unless the easiest route really fits with what their plans are. Because of a retire early or for disability for example the money has to come from their paychecks to pay for the payments. Disability are special rules but, yes. If you separate from employment and he comes remaining Outstanding Balance becomes payable or it is not paid back it becomes a taxable event. The other thing is appealing is the interest rate. Your letting money to yourself but the stated rate is prime, plus wanted it to be whatever the short answers when you were paid to paying interest to yourself. Right. Tiered i think thats an interesting ask that there. 11 patients and you borrow money from yourself while monies out of the plant in not earning investment earning. You are forgoing earnings in order to pay yourself back prime, plus one. Thank you scuttle other corporations because the loan program which are much more prevalent in the 401 k air. They go through this whole issue this regrets issue. Different sponsors at different ways of dealing with it. Some make sure that we at least a 23 week delay before they get the money. People are not all of a sudden running down to their deferred comp like its atm and they think thats added value but whose money is it what is our role but theyre trying to prevent some of the problems it person will have cause i was sometimes called leakage. Can we do something about or should we . Responses could make that speed will but to start with it may sound unfair to the participants. Again i think theres actually wools in certain borrowing were person has 72 hours to regret they can close out paying the fees that are fees are so low its almost negligible. We dont want to check the fees because is not a Profit Center for us or anything like that. [inaudible] [off mic] us we can pay off in a month. Pay it off in a year. [inaudible] [off mic] anyone else . Anything else want to share with us . At a couple of updates for you. One is the target date rfp update. As mr. Driscoll commissioner driscoll mentioned were in the middle but target great rfp. As you may remember, the board had approved for us to begin contracting with russell in may. For another fiveyear contract however shortly after that decision was made it was some Organization Changes that russell. For that reason, they had remained under review and we do not feel comfortable contacting with them immediately. As such they underwent an observation period and so some time has passed and weve been reviewing them. So as our new investment consultant, callum. Upon review it appears that the five reasons the five peas, people, philosophy, process, performance and price will we have not changed over the last couple of months. Portfolio Management Team in place seems quite strong and full of managers actually cio the ashley manages the office target fun dates in addition to the custom target date funds. For that reason would a talking with russell so we can complete a fiveyear contract arrangement with them. So awfully wet by the time we meet in january we will have completed that process. Thats the target date fund of the. On target date fund use were actually going to do the annual rolled out of the glide path. That happens on an annual basis. And russell has discretion to do the role down. This is based on a strategy the board had approved a couple years ago and the actual trade will go into effect on january 3 which makes a new allocation in effect on january 4. So there will be some trades happening in the near future as we move down the glide path. [inaudible] bno rolldown is once a year, correct. [inaudible] [off mic]the next item i have the next item i have is a second ultimate am pleased to provide this update to you but usually its mr. Coker was expanding his team. [laughing] we are finally expanding hours. The first one i want to share with you is stephen boyd. Even more bizarre new loan program manager. He is a wealth of 457 deferred accommodation plan experience. It was an account executive at boeing for nearly 10 years. The city of san jose and the city of san mateo. Stephen holds eight cfa, cfp and many other designations which i like to call the alphabet soup after his name do we are very happy to have stephen with us. In addition im also happy to announce joe collins has been promoted to the team manager of the retirement counselors. As you know chad casper was previously the team lead it recently removed back to seattle so that position was open. I think this is a longtime promotion for joe collins and many of you know him through his work with the police and hes actually been [inaudible] for nearly a decade. He brings a lot of experience and a lot of value to this role. That means that the fifth counselor position is open. They are actively recruiting and they are having interviews, i believe, set for january so hopefully well be able to have a fifth counselor soon. Thats all i have. Thank you. Colleagues, questions . Lets go to Public Comment. Thank you for your presentation at Public Comment is open. Public comment is closed. Thank you clerk call the next item item 14 discussion im scheduled 2017 board meetings. Esther huish we provided a schedule youll notice that all the second wednesday of each month except for mayweather we have determined that because any pc holds an annual Investment Conference were moving it to the third wednesday to encourage Board Members to attend the conference. Discussion item only thank you. But take Public Comment on this item. Public comment is closed. Clerk alden please item 15 discussion im executive directors report esther huish the item i have on my report is a budget update. We met with the Mayors Office last week. As a result of the election theres two consequences that will be impacting the current years budget as well as next years budget. One was the failure to pass sales tax here in San Francisco which had been the revenues from that had been included in a balanced the budget for 1617 and 1718 and the second which is an unknown impact which is potentially a reduction in federal funding as a result of San Franciscos status as a sanctuary city. But in the meantime, the Mayors Office is predicting a 400 million deficit for the next two budget years. So they called upon departments to budget for 83 general fund cut for the next two consecutive years. We have no general funding so we will not be subject to reducing our cost or budget in that manner. They are also basically saying no expansion of [inaudible] and their camino budget submitted with a net increase in personnel. So that will impact our approach to cementing our budget. We has some grace in the fact that we do not rely at all on any general fund but at the same time we are not going to necessarily get additional staffing as we might require or might need, but we will keep you uptodate on that. Then from a perspective of timing we will need to have a finance Committee Meeting in january to present the budget before we would present it to the full board in february. So we will be providing tech and we be contacting, reaching out the Budgeting Committee or finance Committee Draft that meeting. Rb happy to answer any questions. I will be happy to answer questions questions . Thank you. I would also remind you of the Holiday Party and wish you a safe and Holiday Season it if i dont get a chance to see you. I just have a comment on the budget. I still believe you should [inaudible] whatever personnel you want to best operate [inaudible] support that and go forward [inaudible] i will say thats exactly what we intend to do. We will bring forward a budget thati mean weve talked to additional responsibilities that were being asked to assume. For example the retiring Health Care Trust Fund Investments and certainly we will need Additional Resources and funding for Additional Resources. So any help that you can give in particular supervisor cohen in her capacity will be helpful as we go through the budget process. I just wanted to sort of give you the tenor of what the mayor has announced to all the departments and in years that weve had this type of thing we been spared from layoffs or cuts but its very difficult sometimes to get through the board of supervisors additional staffing but you are absolutelyyou hold me to the budget by present is the budget am willing to live with. So we will continue to have that regardless of what the mayor has told us. Thank you. Public comment is open. Undecided Public Comment is closed. Thank you for your presentation. Mr. Huish. The mr. Item 16 item 16 discussion im number good of the order colleagues anything you want to put on that good of the order . Public item comment on this item Public Comment is closed. Item 17, please item will 17 discussion im retirement board member reports reports have intimated for your review we can take Public Comment on this item. Public comment is closed. On item 17 thank you. Item 18 please item 18 close session thank you anything . We will go into closed session. We need to take Public Comment. Ladies and general take Public Comment out as to whether or not we should go into closed session. Seeing none, Public Comment is closed. Thank you very much. May i entertain a motion not to us was discussed in closed session . Moved and seconded. Thank you. The motion has been way. Is there a second . Motion made by mr. Peskin 8 second by commissioner my meiberger. Without objection, thank you. Theres a motion to adjourn. Clerk is that okay . This meeting is adjourned. Thank you. [gavel] [adjournment] clapping. the airport it where i know to mind visions of traffic romance and excitement and gourmet can you limousine were at San Francisco inspirational airport to discover the awardwinning concession that conspiracies us around the world. Sfo serves are more 40 million travelers a year and a lot of the them are hungry theres many restaurant and nearly all are restaurant and cafe thats right even the airport is a diane designation. So tell me a little bit the food program at sfo and what makes this so special well, we have a we have food and Beverage Program at sfo we trivia important the sustainable organic produce and our objective to be a nonterminal and bring in the best food of San Francisco for our passengers. I like this its is inaudible i thank my parents for bringing me here. This the definitely better than the la airport one thousand times better than. I have a double knees burger with bacon. I realize im on a diet but im hoping this will be good. It total is San Francisco experience because theres so many people and nationalities in this town to come to the airport especially everyone what have what they wanted. Are repioneering or is this a model. Were definitely pioneers and in airport commemoration at least nationally if not intvrl we have many folks asking our our process and how we select our great operators. The food option in San Francisco airport are phenomenal thats if it a lot of the airports yeah. You dont have the choice. Some airports are all about food this is not many and this particular airport are amazing especially at the tirnl indicating and corey is my favorite i come one or two hours before my flight this is the life. We definitely try to use as many local grirnts as we can we use the goat cheese and we also use local vendors we use greenly produce they summarize the local soured products and the last one had 97 percent open that. Wow. Have you taken up anything unique or odd here. Ive picked up a few things in napa valley i love checking chocolates theres a lot of types of chocolate and caramel corn. Now this is a given right there. Im curious about the customer externals and how people are richmond to this collection of cities youve put together not only of San Francisco food in San Francisco but food across the bay area. This type of market with the local savors the highend products is great. I know people cant believe theyre in an airport i really joy people picking up things for their friends and family and wait i dont have to be shopping now we want people take the opportunity at our location. How long has this been operating in San Francisco and the late 18 hours it is one of the best places to get it coffee. We have intrrnl consumers that know of this original outlet here and come here for the coffee. So lets talk sandwiches. Uhhuh. Can you tell me how you came about naming our sandwiches from the katrero hills or 27 years i thought okay neighborhood and how do you keep it fresh you can answer that mia anyway you want. Our broadened is were going not irving preserves or packaged goods we take the time to incubate our jogger art if scratch people appreciate our work here. So you feel like out of captured the airport atmosphere. This is its own the city the Airline Crews and the bag handlers and the frequent travels travelers and weve established relationships it feels good. When i get lunch or come to eat the food i feel like im not city. I was kind of under the assumption you want to be done with our gifts you are down one time not true we have a lot of regulars we didnt think wed find that here at the airport. People come in at least one a week for that the food and service and the atmosphere. The food is great in San Francisco its a coffee and i took an e calorie home every couple of weeks. Im impressed i might come here on my own without a trip, you know, we have kids we could get a babysitter and have diner at the airport. This is a little bit of things for everybody theres plenty of restaurant to grab something and go otherwise in you want to sit you can enjoy the experience of local food. Tell me about the future food. Were hoping to bring newer concepts out in San Francisco and what our passengers want. I look forward to see what your cooking up laughter today weve shown you the only restaurant in San Francisco from the comfortableing old stand but you dont have to be hungry sfo has changed what it is like to eat another an airport check out our oblige at tumbler dating. Com with the equipment in the room and please rise for the pledge of allegiance and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. Commissioners commissioner Vice President turman id like to call roll. Sure. Commissioner president loftus is accused commissioner Vice President turman commissioner marshall commissioner dejesus is excused commissioner mazzucco commissioner serlina